Where’s The Correction…?

Stock Correction

"The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a smooth or uninterrupted manner; they never have…..But, most assuredly, America’s best days lie ahead."

Warren Buffett

Interest rates continue to hover at historically low levels, consumer confidence is at the highest level in 6 years, inflation hasn’t reared its ugly head in quite some time, corporate profits continue to make all-time highs, the Federal deficit is actually declining, the dollar is increasing in price and energy prices have fallen to five year lows giving the consumer an additional boast in savings and spending.

Things almost sound too good to be true. So the correction must be around the corner sometime  right? That’s what happened in 2008/2009. It has to happen again right? Well, not necessarily. It could certainly happen — but as long as people continue think it’s going to happen, it probably won’t. Even if it did happen, an investor should be investing or adding to position during these market corrections. If you’re really worried about a stock market correction or crash, look at this figure below.

CircleBlack crash-recovery-bar

People who bet on America right before the Great Depression, eventually made their money back. In fact, those who put $1,000 in the S&P 500 at the height of the market (before the Great Depression), and put $1,000 in every year (a common scenario from 401(k)s, etc)  — they were back at breakeven within seven years. Although, it’s certainly not ideal, seven years is far from a lifetime. And you must remember, this was the longest period you would’ve had to wait. The Great Recession was two years, the Dotcom bubble was 5 years, and the 1970s recession was 3 years to breakeven.

As Adan Freedman, Chief Investment Officer of CircleBlack, wrote in a recent report, "these results suggest that for investors with a long time horizon, the downside of even a worst case scenario isn’t that dire."

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